Parliament

SAA censured as it pleads financial dire straits ahead of strike

By Marianne Merten 14 November 2019
Caption
A South African Airways plane at Cape Town International Airport (Photo: Leila Dougan)

When SAA told MPs it would not submit its audited financials until its going concern status was secure, the national airline was bluntly told it was flouting the law. With a strike set from Friday, the pressure is on SAA and its search for bailout billions.

It was the intervention by Deputy Public Enterprises Minister Phumulo Masualle that brokered a terse truce in an often heated meeting when SAA appeared before the Parliament’s public spending watchdog, the Standing Committee on Public Accounts (Scopa) on Wednesday 13 November.

His proposal for a separate meeting to chart “a roadmap” for SAA submitting its financials was welcomed, and that meeting between Scopa and SAA, but also involving National Treasury and the auditor-general, is now scheduled for 27 November 2019.

It was one of those moments of Parliament asserting its constitutional oversight mandate. In the wake of a series of bailouts, Scopa was spitting fire over SAA’s failure to submit, again, its audited financial statements by the statutory end-of-September deadline.

SAA had put on its poker face. And the airline then invoked the spectre of further bailouts, as a strike would undermine any turn-around strategy.

The cost of a strike is in excess of R50-million per day, not including impact on confidence… I have to say we are at the precipice now with the threat of impending strikes,” SAA board member Martin Kingston told MPs.

When SAA appeared before Scopa on Wednesday, it had received the 48-hour strike notice from the National Union of Metalworkers of South Africa (Numsa) and the South African Cabin Crew Association (SACCA).

That notice came in the wake of SAA saying it wanted to save R700-million by shedding 994 jobs, apparently after deadlocked wage negotiations.

Now Numsa and SACCA have promised the “mother of all strikes” from Friday as its 3,000 members representing staff from check-in counter staff to cabin crew and many employees in between and at SAA Technical down tools from 4am in support of an 8% wage settlement – and job security for the next three years.

Numsa and the association in Wednesday’s joint statement said they rejected the airline’s argument that the strike’s aim was to collapse the airline so it can be placed under liquidation.

Whilst it is true that SAA is hugely in debt, we argue that this crisis has deliberately been created by those tasked with leading this institution… Workers have been at the forefront of trying to save SAA and make it viable. Our members have been fighting against corruption; some were even fired for doing this, and yet, the same cannot be said for the executive management and the board,” said the two unions.

Our goal is to #SaveSAA and to save jobs. It is unacceptable that 11,000 workers must sacrifice their livelihoods for the failures of a corrupt board and incompetent management.”

In the House later on Wednesday, DA MP Geordin Hill-Lewis welcomed the unions’ promise to shut down SAA:

Thank you and please go ahead, shut down SAA…We’ve been wanting this to happen. If you are volunteering to do this for us, maybe we should join you on the picket line.”

The opposition party has long called for the privatisation of the national airline, which since June 2017 received around R15.7-billion in government bailouts. This includes the R5.5-billion allocated as recently as September 2019, but excludes the undertaking by Finance Minister Tito Mboweni in the medium-term budget policy statement to make R9.2-billion available to meet maturing debt repayments.

Hill-Lewis’s offer to join the picket line was a tongue-in-cheek political barb, given that the DA and Numsa could not be more politically and ideologically opposed. But it was another pointer to the bizarre twists and turns over SOEs and their need for bailout billions.

Mboweni may publicly talk, as he has, about bringing in strategic equity partners – that’s the more palatable political term rather than privatisation – but the reality is that government has been in paralysis. At least some of this relates to ideology, but also the factional political battles within the governing ANC and alliance partners.

That all options were on the table regarding SAA, including business rescue, emerged at Scopa on Wednesday. But it was not a straightforward matter, tied in as it is with SAA’s search for bailout billions.

Kingston was in the hot spot also on this one:

We have had extensive discussions with the shareholder about all options, including business rescue. Business rescue would have ramifications on existing agreements, including lease agreements… Business rescue is not an option available to the current board under the current circumstances.”

He did not actually say whether the government had agreed to the business rescue in response to a question by DA MP Alf Lees. So, while it emerged SAA had “put all options on the table”, the official response from the shareholder – that’s government, and specifically Public Enterprises – remained unclear.

Instead, SAA stressed the need for more money, effectively a 12- month cushion. Discussions with lenders for another R2-billion had proceeded well, MPs were told, but R2-billion was no longer sufficient.

And that argument for more money looped back to why SAA had failed to submit to Parliament its audited financial statements and annual report, again, before the end-of-September deadline set out in the Public Finance Management Act (PFMA).

Acting SAA board chairperson Thandeka Mgoduso took exception to MPs saying the national carrier had violated the law.

I do not believe we have flouted the law. We have received unequivocal support from the shareholder… We have legal options to the effect that that is enough. We have not been in breach of pieces of legislation.”

That didn’t go down well with Scopa. MPs sat unbelievingly as SAA effectively said it would not be forced into submitting financial statements until it is ready, and with a 12-month financial support guarantee.

SAA is not prepared to shoulder the risk associated with a disclaimed audit opinion from the auditor-general,” was how the SAA briefing document put it. Or as Kingston elaborated:

There are only two bases on which accounts are prepared… going concern basis or liquidation basis. There is no middle ground. It is not in the interest of the company, shareholder or the county to prepare accounts on the basis of liquidation. What we are seeking to do is to prepare the accounts on a going concern basis. To do so, we need to be comfortable we have the funds for the next 12 months.”

To table the financial statements without such funding was tantamount to going the liquidation tabling route.

[This] would have a catastrophic effect. All our loans and leases on planes would be accelerated. There are R40-billion of obligations that would have to be settled immediately.”

Lees sharply dismissed this:

It is not your decision what form the financials take. You have an obligation to present those financial statements. You can’t sit like some super controller and decide, I’m not going to submit because I fear certain consequences.”

Coincidentally, on Wednesday, SA Express (SAX) tabled its financials, almost seven weeks late and clearly not sharing SAA’s discomfort over a disclaimed audit opinion, the second-worst possible.

The SAX disclaimed audited financials make grim reading. The airliner, in the end, clocked up R590,763,026 in losses in the 2018/19 financial year, just over double the losses recorded a year earlier. Reasons for the disclaimer included failure to accurately record passenger revenue, insufficient evidence to substantiate cargo revenue, while the full extent of irregular expenditure could not be properly ascertained.

Unlike SAX, SAA got a break when Scopa agreed to the end of November 2019 meeting on a roadmap towards tabling its financials and annual reports.

Strictly speaking, SAA has until March 2020 to hold its annual general meeting so it can adopt its audited financial statements. That’s the time-frame Public Enterprises Minister Pravin Gordhan outlined in his letter to Parliament dated 27 September on the delayed annual report from both SA Express and SAA due to doubts over going concern status.

Scopa chairperson Mkhuleko Hlengwa summed up MPs’ sentiments when he pointed out SAA had to accept that it had not complied with the law as it had not submitted its audited financial statements in line with the PFMA.

You cannot cherry-pick compliance… SAA believes when it’s in a corner, Parliament will understand. No, no, no. There are terms and conditions – and that’s compliance.”

Whether, and how that happens will be a crucial test not only for Scopa, but also for the oversight mandate of Parliament overall. DM

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